SEGMENT INFORMATION AND GEOGRAPHIC DATA

6 Months Ended

Dec. 31, 2020

SEGMENT INFORMATION AND GEOGRAPHIC DATA [Abstract]

SEGMENT INFORMATION AND GEOGRAPHIC DATA

3. SEGMENT INFORMATION AND GEOGRAPHIC DATA

The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making operating decisions and assessing performance as the source of the Company’s operating and reportable segments.

The Company manages its business through two operating and reportable segments based on its distribution channels to sell its product lines, loose jewels and finished jewelry: its “Online Channels” segment, which consists of e-commerce outlets including charlesandcolvard.com, third-party online marketplaces, drop-ship retail, and other pure-play, exclusively e-commerce outlets; and its “Traditional” segment, which consists of wholesale and retail customers. The accounting policies of the Online Channels segment and Traditional segment are the same as those described in Note 2, “Basis of Presentation and Significant Accounting Policies” of this Quarterly Report on Form 10-Q and in the Notes to the Consolidated Financial Statements in the 2020 Annual Report.

The Company evaluates the financial performance of its segments based on net sales; product line gross profit, or the excess of product line sales over product line cost of goods sold; and operating income. The Company’s product line cost of goods sold is defined as product cost of goods sold, excluding non-capitalized expenses from the Company’s manufacturing and production control departments, comprising personnel costs, depreciation, leases, utilities, and corporate overhead allocations; freight out; inventory write-downs; and other inventory adjustments, comprising costs of quality issues, and damaged goods.

The Company allocates certain general and administrative expenses between its Online Channels segment and its Traditional segment based on net sales and number of employees to arrive at segment operating income. Unallocated expenses remain in its Traditional segment.

Summary financial information by reportable segment for the periods presented is as follows:

	Three Months Ended December 31, 2020
	Online Channels		Traditional		Total
Net sales
Finished jewelry	$	6,588,338	$	1,676,859	$	8,265,197
Loose jewels		997,939		2,883,654		3,881,593
Total	$	7,586,277	$	4,560,513	$	12,146,790
Product line cost of goods sold
Finished jewelry	$	2,863,733	$	1,138,413	$	4,002,146
Loose jewels		388,426		1,417,177		1,805,603
Total	$	3,252,159	$	2,555,590	$	5,807,749
Product line gross profit
Finished jewelry	$	3,724,605	$	538,446	$	4,263,051
Loose jewels		609,513		1,466,477		2,075,990
Total	$	4,334,118	$	2,004,923	$	6,339,041
Operating income	$	1,494,448	$	1,026,535	$	2,520,983
Depreciation and amortization	$	59,221	$	79,384	$	138,605
Capital expenditures	$	90,852	$	52,350	$	143,202

	Three Months Ended December 31, 2019
	Online Channels		Traditional		Total
Net sales
Finished jewelry	$	5,144,320	$	1,294,027	$	6,438,347
Loose jewels		940,434		3,280,309		4,220,743
Total	$	6,084,754	$	4,574,336	$	10,659,090
Product line cost of goods sold
Finished jewelry	$	2,239,750	$	724,364	$	2,964,114
Loose jewels		405,869		1,675,785		2,081,654
Total	$	2,645,619	$	2,400,149	$	5,045,768
Product line gross profit
Finished jewelry	$	2,904,570	$	569,663	$	3,474,233
Loose jewels		534,565		1,604,524		2,139,089
Total	$	3,439,135	$	2,174,187	$	5,613,322
Operating income	$	349,762	$	414,163	$	763,925
Depreciation and amortization	$	32,773	$	76,892	$	109,665
Capital expenditures	$	137,200	$	71,211	$	208,411

	Six Months Ended December 31, 2020
	Online Channels		Traditional		Total
Net sales
Finished jewelry	$	10,211,799	$	2,388,735	$	12,600,534
Loose jewels		1,839,772		5,632,777		7,472,549
Total	$	12,051,571	$	8,021,512	$	20,073,083
Product line cost of goods sold
Finished jewelry	$	4,197,115	$	1,559,320	$	5,756,435
Loose jewels		701,115		2,848,410		3,549,525
Total	$	4,898,230	$	4,407,730	$	9,305,960
Product line gross profit
Finished jewelry	$	6,014,684	$	829,415	$	6,844,099
Loose jewels		1,138,657		2,784,367		3,923,024
Total	$	7,153,341	$	3,613,782	$	10,767,123
Operating income	$	2,269,113	$	1,126,140	$	3,395,253
Depreciation and amortization	$	113,573	$	157,488	$	271,061
Capital expenditures	$	150,129	$	94,559	$	244,688

	Six Months Ended December 31, 2019
	Online Channels		Traditional		Total
Net sales
Finished jewelry	$	8,121,667	$	2,174,675	$	10,296,342
Loose jewels		1,668,716		6,302,453		7,971,169
Total	$	9,790,383	$	8,477,128	$	18,267,511
Product line cost of goods sold
Finished jewelry	$	3,452,623	$	1,214,401	$	4,667,024
Loose jewels		671,063		3,210,043		3,881,106
Total	$	4,123,686	$	4,424,444	$	8,548,130
Product line gross profit
Finished jewelry	$	4,669,044	$	960,274	$	5,629,318
Loose jewels		997,653		3,092,410		4,090,063
Total	$	5,666,697	$	4,052,684	$	9,719,381
Operating income	$	395,427	$	521,203	$	916,630
Depreciation and amortization	$	82,023	$	152,280	$	234,303
Capital expenditures	$	210,925	$	108,803	$	319,728

The Company does not allocate any assets to the reportable segments, and, therefore, no asset information is reported to the chief operating decision maker or disclosed in the financial information for each segment.

A reconciliation of the Company’s product line cost of goods sold to cost of goods sold as reported in the condensed consolidated financial statements is as follows:

	Three Months Ended December 31,						Six Months Ended December 31,
	2020			2019			2020			2019
Product line cost of goods sold	$	5,807,749		$	5,045,768		$	9,305,960		$	8,548,130
Non-capitalized manufacturing and production control expenses		395,237			427,643			724,641			817,519
Freight out		316,542			141,233			491,881			272,352
Inventory write-off		25,000			126,000			105,000			149,000
Other inventory adjustments		(376,820	)		(210,130	)		(263,719	)		(379,863	)
Cost of goods sold	$	6,167,708		$	5,530,514		$	10,363,763		$	9,407,138

The Company recognizes sales by geographic area based on the country in which the customer is based. Sales to international end consumers made through the Company’s transactional website, charlesandcolvard.com, are included in international sales for financial reporting purposes. A portion of the Company’s Traditional segment sales made to international wholesale distributors represents products sold internationally that may be re-imported to U.S. retailers.

The following presents net sales by geographic area:

	Three Months Ended December 31,				Six Months Ended December 31,
	2020		2019		2020		2019
Net sales
United States	$	11,388,680	$	9,643,311	$	18,888,399	$	16,407,187
International		758,110		1,015,779		1,184,684		1,860,324
Total	$	12,146,790	$	10,659,090	$	20,073,083	$	18,267,511